Few sectors of retail showed the life-altering impact of the pandemic more than the home category.
The sector saw both highs and lows over the past five years. And while signs of normalization are emerging, home goods retailers — and the industry more broadly — are bracing for new challenges ahead.
At the onset of the pandemic, sales at home goods retailers skyrocketed. Life largely shifted to revolve around the home: For many individuals, homes very quickly became remote offices and classrooms in an attempt to slow the spread of the virus. Recreational activities also moved to the home, with consumers testing the latest viral trend in the kitchen or binging the newest TV series from their couches.
That, in turn, meant demand for home items increased as consumers sought products to make their new normals a bit more comfortable.
“What happened during the pandemic was a very disjointed reality for consumers because we shifted from using our home and using our dollars that we spent on our home in a very social, engaging way to one that was much more utilitarian,” Greg Portell, a senior partner and global markets lead at Kearney, said. “Companies that provided office space, utility types of purchases — because we were stuck at home — did very, very well. But the entertaining type of categories suffered because we weren't entertaining during that time period.”
Wayfair — which sells a variety of home goods from office desks and chairs to couches to kitchen products — experienced a boost in sales early in the pandemic. The company recorded an annual net profit for the first time in 2020 after making its public market debut in 2014.
The pandemic created a unique scenario that fueled demand in the sector and pulled forward many purchases, according to Joe Derochowski, Circana’s home industry adviser.
“We basically sold four to five years worth of stuff in one year. So an industry that was already hot went really, really hot,” Derochowski said.
However, as restrictions eased and vaccines allowed consumers to return to many aspects of their pre-pandemic lives, home retailers took a hit.
Home furnishing sales grew early in the pandemic before demand quickly declined
Up until recently, sales from furniture and home furnishing stores steadily declined on a year-over-year basis, according to monthly numbers from the U.S. Department of Commerce’s Census Bureau.
A declining housing market coupled with increasing inflation also caused demand in the home goods category to decline, according to Darpan Seth, CEO of Nextuple, an omnichannel order management advisory and software firm.
The macroeconomic factors only accelerated the decline of retailers that were already facing challenges, leading to several bankruptcies in the space including from Bed Bath & Beyond, Z Gallerie and Mitchell Gold and Bob Williams in 2023 and The Container Store and Tupperware last year.
“It all swung back to the other side — big decline,” Seth said. “There was 10% growth during the pandemic. There was another 7% decline thereafter.”
Where we are now
While home retailers have experienced both highs and lows over the past several years as demand shifted, there are signs the space is normalizing.
Home goods sales were up year over year in the last three months of 2024, and that growth continued into the new year with the sector experiencing a 5.2% increase in January, according to the Commerce Department.
Growth has extended beyond home furnishings. Within home improvement, The Home Depot last month reported its first quarterly comparable sales gain in two years.
Kitchen appliance sales hit $10 billion in 2024, according to Circana data. While that’s below the early pandemic levels of 2021 and 2022, it marked an increase from the prior year. Other categories across the sector experienced gains as well: home environment appliances grew nearly 3% year over year, housewares were up 0.6% and home textiles expanded 8.2%.
Home categories are on the rise again"
While sales in the sector broadly are increasing, several retailers have yet to recover. RapidRatings tracks both long- and short-term indicators into how individual companies are performing through its Financial Health Rating, which measures the likelihood of default over the next 12 months, and its Core Health Score, a financial health measurement that looks at the long-term sustainability and operational efficiency of a company. Both measurements are on a 100-point scale, with 100 being the best score and 0 being the worst.
As of late February, Beyond Inc. — which formed following Overstock’s acquisition of Bed Bath & Beyond out of bankruptcy and now also includes Zulily — had an FHR of 34 and a CHS of 27, both representing high risk of default. The company last month reported fourth-quarter net revenue fell over 20% to $303 million, while full-year revenue fell 10.6% to $1.4 billion. And just last week, amid a flurry of C-suite changes, the company announced Executive Chairman Marcus Lemonis became its principal executive officer after 16-year company veteran Dave Nielsen was terminated.
Wayfair’s current FHR is 23 and its CHS is 30, also making the online home goods retailer a high risk of default. In its most recent quarter, Wayfair reported revenue inched up just 0.2%; for the year, revenue fell 1.3%. The retailer has also initiated several rounds of layoffs in recent years, with the latest announced earlier this month.
And Kirkland’s, which announced last month plans to update or close 6% of its store footprint as part of a turnaround effort, has an FHR of 24 and a CHS of 29. Kirkland’s in June announced it hired a financial adviser to review strategic alternatives for the company. The home goods retailer in the fall inked a deal with Beyond, which involves the return of Bed Bath & Beyond stores in a smaller format, while Kirkland’s received $17 million in debt financing from Beyond.
While Kirkland’s Financial Health Rating and Core Health Score put it at high risk of default, it’s not necessarily a death sentence. But it’s not an encouraging sign either, according to RapidRatings Executive Chairman James Gellert.
“That doesn’t mean that a 24 is going to file for bankruptcy, but it means it certainly is susceptible to all of the things that could make that happen,” Gellert said.
But to put it into perspective, when The Container Store filed for Chapter 11, it had an FHR of 33, LL Flooring had a score of 30 and Big Lots had a score of 27, according to RapidRatings.
The risk for companies that file for bankruptcy — even if they’re able to exit largely unscathed — is a loss of customers, especially within the home sector where consumers are less loyal to particular brands and retailers.
“Once consumers have gone away from buying from you to other places, they usually don't come back,” Nextuple’s Seth said. “You can secure financing and you can try to prop it up, [but] it’s very difficult to climb out of a bankruptcy for companies in this space in particular.”
What’s ahead
On top of fluctuating demand over the past several years, home retailers are facing a number of macroeconomic factors, including inflation and uncertainty around key political issues.
As President Trump took office at the top of the year, concerns over tariffs — and their potential impacts to both retailers and consumers — intensified.
While tariffs on goods from Mexico and Canada are less likely to deal a significant blow to the home goods sector, the 10% tariff hike on imports from China may force more pressure onto retailers, according to Cristina Fernández, Telsey Advisory Group managing director and senior research analyst.
The 10% increase, which would up the ordered rate to 20%, would likely “translate into a low-single-digit price increase for those goods,” based on what happened after previous tariffs went into effect during Trump's last term, Fernández said. However, she noted those cost increases will likely be “manageable” for retailers.
But as consumers grapple with price increases across all sectors of retail, the home category could still stand to reap some benefits. Circana’s Derochowski points to trends coming out of the Great Recession as something the industry could expect to see in the months ahead.
“When the recession hit, the consumer who used to eat at restaurants a lot, that younger consumer, started to eat more at home because it was cheaper and they started to entertain more at home,” Derochowski said.
On top of that, he added, consumers are starting to hit the replacement phase for high-frequency use items that were bought early in the pandemic.
“Bottom line is: We have been in a growth phase the back part of the year, and I suspect that that should continue going forward,” Derochowski said.
